Transition to green technology along the supply chain

Philippe Aghion, Lint Barrage, Eric Donald, David Hemous and Ernest Liu

No 450, ECON - Working Papers from Department of Economics - University of Zurich

Abstract: We analyze a model of green technological transition along a supply chain. In each layer, a good is produced with a dirty technology, or, if the required “electrification” innovation has occurred, with a clean technology which uses the immediate upstream good. We show that the economy is characterized by a single equilibrium but multiple steady-states, and that even in the presence of Pigouvian environmental taxation, a targeted industrial policy is generally necessary to implement the social optimum. We also show that: (i) small, targeted industrial policy may bring large welfare gains; (ii) a government which is constrained in its policy instruments, either unable to subsidize electrification in more than one sector or price carbon at its true social cost, should primarily target downstream sectors; and (iii) when extending the model so as to allow for supply chains also for the dirty technology, overinvesting in electrification in the wrong upstream branch may derail the overall transition towards electrification downstream.

Date: 2024-09, Revised 2024-10
New Economics Papers: this item is included in nep-ene, nep-env, nep-ino, nep-ipr and nep-res
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Related works:
Working Paper: Transition to green technology along the supply chain (2024)
Working Paper: Transition to green technology along the supply chain (2024)
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